Last Week in the City: UK Covid-19 recovery stalls

Garry White, Chief Investment Commentator, provides a round-up of the market movements and the global investing outlook this week ending 9 October.

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  1. Garry White

Rising stimulus hopes and a strong recovery in China helped equity markets rise this week. But this was against a backdrop of rising Covid-19 infections. The UK’s bounce back from lockdown stuttered in August – and the government may have to continue its furlough scheme in areas where local lockdowns have been imposed. Joe Biden looks on course to win the presidential election next month if the polls are to be believed, but we urge caution due to “shy Trump” voters.  

The FTSE 100 was up 1.9% the course of the week by mid-session on Friday, with the FTSE 250 up 3.6% over the same period on building hopes of a US stimulus.

Charles Stanley Radio

Listen to our Research team and Investment Managers discuss hot market topics.

The outlook for sterling: In this episode, we discuss factors which affect the value of the great British pound.

The US presidential election: What does it mean for markets? In this episode, we discuss the upcoming US presidential election and the impact this will have for investors.

Globalisation: The end of the party? Whilst the last century was defined by globalisation through global supply chains and cheaper trade, Garry White & Will Dobbs explore how both the Covid-19 pandemic and Brexit have and will affect globalisation.

 

Covid-19

The World Health Organisation (WHO) reported a record one-day increase in global Covid-19 cases on Thursday, with the total rising by 338,779 in 24 hours led by a surge of infections in Europe. The continent reported 96,996 new cases, the highest total for the region ever recorded by the WHO.

The UK appears to be suffering a second wave of the virus. Health minister Matt Hancock warned the United Kingdom was at a “perilous moment” as more than 17,540 new daily Covid-19 cases were recorded on Thursday, up by more than 3,000 from the day before. The number of Covid-19 patients in hospitals in England rose to 3,044 from 2,944 on Wednesday, the highest figure since 22 June.

Many parts of northern England, Wales and Scotland have seen new, tough local restrictions on social interaction to try to curb the growing spread of the disease.

UK Chancellor Rishi Sunak will reportedly announce an extension to the furlough scheme on Friday, providing much-needed support for businesses which could be forced to close. The scheme will reportedly be made available to employers “as long as pubs, restaurants and other businesses” are shut, and will subsidise two-thirds of wages of staff working in those establishments. The move would follow mounting concerns over the potential impact of further lockdown restrictions in parts of England.

Donald Trump's physician said the president had completed his course of therapy for the Covid-19, had remained stable since returning to the White House – and could return to public engagements on Saturday.

Will they, or won’t they? Donald Trump vacillated on agreeing to a new round of stimulus cash for Americans and their businesses hit by the Covid-19 pandemic. Mr Trump pulled the plug on the fractious and lengthy discussions over more aid on Tuesday. “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill,” Trump wrote on Twitter. But after equities fell Mr Trump’s position appeared to soften – and the president tweeted he was prepared to sign off on more aid for the US’s troubled airline industries and “a Stand Alone Bill for Stimulus Checks ($1,200), they will go out to our great people IMMEDIATELY. I am ready to sign right now.” However, that would represent a fraction of the $2.2trn support which the Democrats claim is needed.

Even in the most freedom-loving societies, there was widespread buy into controls for the initial lockdowns. Now consent is waning. We take a look at the issue in this week's article, The virus remains difficult to control.

Economics

The UK economy continued its recovery in August, but growth was much slower than expected, at 2.1%. The British economy is still 9.2% smaller than before the pandemic struck. In June, the economy grew by 8.7% and in July, by 6.6%.

After Chinese markets returned from a long period of closure for the Golden Week holiday, the renminbi jumped by the most in four and a half years – 1.2%. Gains were said to be a result of the country’s accelerating economic recovery – and rising odds of a Joe Biden presidency in the US.

Geopolitics

It is always wise to be careful of electoral polls, but Joe Biden currently appears likely to win the US election. However, the underlying reality is probably much closer, as there is a large amount of “shy” Trump voters that will not express their opinion to pollsters. Charles Stanley thinks the race is likely to be closer than current polling suggests. In our article we take a look at How will the US election impact equity markets?

There is "clear evidence of collusion" between Huawei and the "Chinese Communist Party apparatus", a UK parliamentary inquiry concluded. The MPs said the government may need to bring forward a deadline set for the Chinese group’s 5G components to be removed from the UK's mobile networks. Huawei has responded by saying "this report lacks credibility as it is built on opinion rather than fact". China now plans to leapfrog the US in an essential component of the future economy, increasing divisions further. Garry White looks at the issue in the article, China plans to pull further ahead of the US in 5G.

Technology

IBM, one of the pioneers of personal computing is splitting into two – a high-growth business focusing on the technology of tomorrow, such as cloud computing and AI, and that will run its lower growth legacy businesses. The market received the news positively.

US moves to try and stop western trade with China’s Semiconductor Manufacturing International Corp (SMIC) appear to be working after S&P threatened to downgrade its bonds to junk. The credit ratings agency S& warned of rising supply chain risk for the Chinese chipmaker after US sanctions were introduced. The decision to add SMIC to a negative credit watch list is the latest sign of mounting pressure on the Chinese chip company after the U.S. Department of Commerce told some suppliers that exports to SMIC would be subject to further restrictions and would require a license. SMIC is the latest company in the sights of US-China hawks after Huawei.

China’s new Long Technology March is gathering pace as Donald Trump’s action over the last four years has changed the face of technology. Garry White argues Donald Trump is a founding father of the Digital Age in this week's article, China’s new Long Technology March is gathering pace.

Energy

Oil soared this week, notching up its biggest gain since June. This was a result of supply outages caused by a storm in the Gulf of Mexico – and a strike of offshore workers in Norway. Brent crude future jumped 10.8% over the week by mid-session on Friday, trading at about $43.50 a barrel.

Financials

The London Stock Exchange Group will sell Borsa Italiana to Dutch exchange Euronext for €4.3bn in a deal that should pave the way for its multibillion takeover of data provider Refinitiv. European regulators have been scrutinising the proposed deal.

Retail

Retail footfall dropped by almost a third throughout September, as the tightening of restrictions impacted retailers’ recovery, according to the latest BRC-ShopperTrak footfall monitor. Overall UK retail footfall decreased by 30.1% in September compared to the equivalent month last year. While figures revealed a 4.7-percentage-point improvement compared with August, local lockdown restrictions weighed on shopping throughout the month.

Aldi is more than doubling the number of items available for home delivery via the Deliveroo app, as it continues its push into e-commerce. Aldi Ireland announced this week that 330 items will now be available for customers to have delivered to their door in 30 minutes. In June, Aldi expanded the number of products available for home delivery in the UK from 150 to 200, but positive customer feedback across both markets suggests this could also soon be expanded.

Media

Wonder Woman director Patty Jenkins said that movie-going is facing a real threat of extinction. Her new superhero movie has been delayed three times during the coronavirus pandemic. She is among dozens of top Hollywood directors appealing to the US government to provide a financial lifeline to cinemas. The comments came as Cineworld's said it would temporarily close of all 102 sites across the country, with Cineworld-owned Picturehouse shutting another 25.

Transport

This week marked the end of an era for flying enthusiasts. The last two Boeing 747 jets operated by IAG’s British Airways made their final flights from Heathrow airport after Covid-19 meant the national carrier could no longer afford to fly the planes. Both planes final flights were to sites where they will be stripped apart for scrap.

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